If in case you have been taking note of the fintech area over the previous few months, then you might have seemingly heard the time period “ICO” thrown round repeatedly. To this point, blockchain startups have raised over $3.5 billion by way of this rising fundraising channel. However what are they? And why ought to we care about them?
At a excessive stage, an Initial Coin Offering (“ICO”) is a “fundraising mechanism during which new initiatives promote their underlying crypto tokens in trade for early capital.” Usually in comparison with the extra mainstream Preliminary Public Providing (IPO), ICOs democratize the fundraising course of, serving as a crowdfunding instrument that may be levered at scale. Whereas a comparatively new phenomenon, these token gross sales are rapidly gaining momentum, empowering a worldwide pool of traders to fund the following era of firms.
The most important downside with ICOs, as they acquire public consideration, is that they’re unregulated. There are few limitations to entry for anybody wishing to create a white paper, design a easy touchdown web page and begin gathering funds by way of a digital wallet. There are a variety of fraudulent “entrepreneurs” who’re abusing the system. Consequently, it may be extraordinarily difficult, as an investor, to choose the needles out of the looming haystack.